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Old 03-13-2021, 11:55 AM   #41
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I looked at doing the same and decided the value wasnít there. My wife has been learning what I do and why but finances isnít really her interest. So if I die first and she doesnít want to manage the portfolio, she will pay the 0.3% AUM to the Vanguard folks to manage it.

This is my plan as well. Vanguard for it's 0.3% fee.
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Old 03-13-2021, 11:59 AM   #42
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people around here have recommended the Garrett Planning Network, www.xyplanningnetwork.com
That's the advisor I mentioned that said he had so much AUM business that he could not in good faith take on any non-AUM clients, as he just didn't have the time. He should not be in the XY network at all.
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Old 03-13-2021, 01:40 PM   #43
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I did much the same until about 4.5 years ago. Our Vanguard accounts qualified us to get the services of a senior advisor at a lowered rate. He helped us refine the plan and was a huge help when I got serious about retirement. That was critical due to me pushing the timeline up 2 years.


+1. Our assigned Vanguard CFP only costs thirty basis points for their AUM program, though I am not sure if thatís what you chose, too. Iíd be looking at several more years of w*rk rather than RE last July if I was relying on one of the endless variations of the 4% Rule. Vanguardís spending recommendations are surgically targeted to our specific goals and finances. I could go on about the many other benefits of the Vanguard Personal Advisor Services program for my DW and me, as I have on other strings, but it would probably convince no one to give it a look, so their MMV.
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Old 03-13-2021, 02:08 PM   #44
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I have friends and family who have no interest in managing their portfolios. For those folks, or for those who are concerned about spouse's ability to manage after their death, a FA makes sense. That said, I absolutely cringe at how much they are getting financially soaked - especially by FA's that only do AUM. The only good alternative I'm aware of is Vanguard PAS at 0.3 AUM. Rick Ferri also used to do AUM at .25%, but his firm got bought out and he's now doing only hourly at $400/hr.

For all others, it's hard to fathom how an AUM FA charging 1+% is worth the $$. That's $10K EVERY. YEAR, year in, year out on every million invested, or $100K over ten years on every million. No thanks!

There appear to be very few true "fee-only" FAs. I've seen many that claim to be fee-only, but then also charge AUM on top of (!) their fee. To me, that's not "fee only"..it's AUM PLUS a fee..

It's gotta be tough to be a true fee-only FA..even if you charge $250 / hr (or, like Ferri, $400+/hr), there's just not enough revenue flow to make a business out of it. (Let's say the average plan takes someone - being generous..10 hours. That's only $2,500 per client. Plus an hour here and there throughout the year. It'd take at least 40 new clients every year to bring in even $100K gross).

Since there's very little money to be made in the "true" fee-only FA business, it's not surprising that there continue to be so few that are actually fee-only and that do not charge AUM..
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Old 03-13-2021, 07:23 PM   #45
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We recently sat down for about an hour with a partner at a local CPA firm. In that hour (@ $250), he answered pretty much all of the questions I had about taxes and estate planning. I've read a lot already as an amateur, and thought carefully about our family's situation, so it was easy to go fast. The benefit was worth far more than the cost, but the additional value of another hour would be pretty marginal.

His main business is tax prep and bookkeeping I think, but helping us out in that way is a good additional line of business.

We're probably good for at least another year or two. $250 every year or every other year is a lot less than 1.1% of AUM.

Even Vanguard's 0.3% fee is probably high. Their advice will probably be 60/40 stocks/bonds, and 70/30 domestic/international. If you want to follow that advice and can operate a four-function calculator, you can do it yourself for pretty much free.

...

True story:

My Dad used to have his money with a local stock broker, who was series 6x licensed and worked for a major brokerage firm at first but then opened his own local office as a branch of a smaller brokerage firm.

Probably 15 years ago now, there was a young lady in our valley who won one of the lotteries (Powerball?) to the tune of $200M+, and she ends up choosing my Dad's broker as her financial guy. Said financial guy decides about that same time to switch to an AUM fee arrangement. My Dad declines to accept the changing fee schedule and moves his money elsewhere, and financial guy pretty much doesn't return his phone calls any more.

It's what I probably would have done too, but it was a little sad to see the way things happened. My Dad's done fine doing pretty much nothing but LTBH since then, although he does like to occasionally do contrarian buys of good stocks that are temporarily down on their luck, which has probably helped a bit.
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Old 03-13-2021, 07:41 PM   #46
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+1. If you have a typical 4% WR and the FA charges 1.1%, then that costs 27.5% of your cash flow. That is outrageous to me. What you did before worked well.

+1 This is how I explained it to DH.
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Old 03-13-2021, 08:54 PM   #47
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+1 This is how I explained it to DH.
Agreed! Giving away 27.5% of your income to an advisor is absolutely ridiculous. I donít understand how people donít see that.
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Old 03-13-2021, 09:14 PM   #48
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For all others, it's hard to fathom how an AUM FA charging 1+% is worth the $$. That's $10K EVERY. YEAR, year in, year out on every million invested, or $100K over ten years on every million. No thanks!
I'm not going to defend FA's or AUM fees, but the above is not typical at all. I suppose anything is possible, but anyone I've ever talked to gets a much reduced rate after the first million. There's no way someone with a $10M portfolio is paying 1% unless they've totally given up on trying to limit their expenses or just don't care. The funds I have with my FA are just under $1M and I pay about 3/4 of a percent (.0075). Not saying I don't feel pain from that, but it's not 1% and I'm sure it would be a significantly lower if I had a few more million.
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Old 03-13-2021, 09:22 PM   #49
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I'm not going to defend FA's or AUM fees, but the above is not typical at all. I suppose anything is possible, but anyone I've ever talked to gets a much reduced rate after the first million. There's no way someone with a $10M portfolio is paying 1% unless they've totally given up on trying to limit their expenses or just don't care. The funds I have with my FA are just under $1M and I pay about 3/4 of a percent (.0075). Not saying I don't feel pain from that, but it's not 1% and I'm sure it would be a significantly lower if I had a few more million.
I agree with you in general, but I do think that AUM fees sort of work like tax brackets - if you have $3M, you may only pay, say, 0.25% on that third million, but you're still paying 1% on the first $1M (or whatever). It's not as though they say, oh, for $3M we only charge 0.25% on everything.
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Old 03-13-2021, 09:33 PM   #50
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I agree with you in general, but I do think that AUM fees sort of work like tax brackets - if you have $3M, you may only pay, say, 0.25% on that third million, but you're still paying 1% on the first $1M (or whatever). It's not as though they say, oh, for $3M we only charge 0.25% on everything.
Agree. Not sure of the math, but I'm sure total fees increase as AUM increase.
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Old 03-13-2021, 10:32 PM   #51
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I'm not going to defend FA's or AUM fees, but the above is not typical at all. I suppose anything is possible, but anyone I've ever talked to gets a much reduced rate after the first million. There's no way someone with a $10M portfolio is paying 1% unless they've totally given up on trying to limit their expenses or just don't care. The funds I have with my FA are just under $1M and I pay about 3/4 of a percent (.0075). Not saying I don't feel pain from that, but it's not 1% and I'm sure it would be a significantly lower if I had a few more million.
Thatís better than paying a full percent. But even at .75% you are giving away 18.75% of your income each year.

Under a simple example of a $1M nest egg and a 4% withdrawal rate, a self managed portfolio provides $40,000 per year in living expenses. An AUM portfolio would yield $32,500 in living expenses. Thatís still pretty substantial.
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Old 03-13-2021, 10:44 PM   #52
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Thatís better than paying a full percent. But even at .75% you are giving away 18.75% of your income each year.

Under a simple example of a $1M nest egg and a 4% withdrawal rate, a self managed portfolio provides $40,000 per year in living expenses. An AUM portfolio would yield $32,500 in living expenses. Thatís still pretty substantial.
I've conceded that the FA is expensive, but my math does not work that way. I have significant investments in another account and I have a pension. I don't even draw from the money I have with the FA. I'm grateful that my initial cash at the beginning of retirement has not yet run out. I think I still have a few years before I have to think about a distribution from any of my retirement (pre-tax) accounts.
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Old 03-13-2021, 10:52 PM   #53
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I've conceded that the FA is expensive, but my math does not work that way. I have significant investments in another account and I have a pension. I don't even draw from the money I have with the FA. I'm grateful that my initial cash at the beginning of retirement has not yet run out. I think I still have a few years before I have to think about a distribution from any of my retirement (pre-tax) accounts.
I understand. My comment was more of a general observation for someone who is thinking about hiring an advisor to manage their entire nest egg.
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Old 03-14-2021, 02:20 AM   #54
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I know everybody's situation is different, but I did a comparison to a colleague who retired from the same Megacorp as me. While he has been retired longer than me, I have compared his ROR for the 8 years we have in common. We are the same age. We both have 65/35 AA.

He manages his own 7 index funds at Vanguard and rebalances yearly; does 1 annual w/d. He pays a CPA for occasional financial advice.

He has averaged 9.4% ROR for the past 8 years.

I have a financial advisor (for 13 years now) who charges .85% AUM. Minor rebalancing happens with each monthly w/d. I get financial advice for free when needed, and just this tax season my advisor told me to consider using COVID Relief Distribution to pay back funds into my IRA that I borrowed for a few months to put down on a new home while waiting for our rental property to sell. That saved me $30K in taxes and kept me from paying IRMMA fees. There have been other tax savings suggestions over the years as well.

I have averaged 9.3% ROR after fees for the last 8 years.

Advisors can be good for some people, but good ones are not easy to find.
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Old 03-14-2021, 08:08 AM   #55
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I know everybody's situation is different, but I did a comparison to a colleague who retired from the same Megacorp as me. While he has been retired longer than me, I have compared his ROR for the 8 years we have in common. We are the same age. We both have 65/35 AA.

He manages his own 7 index funds at Vanguard and rebalances yearly; does 1 annual w/d. He pays a CPA for occasional financial advice.

He has averaged 9.4% ROR for the past 8 years.

I have a financial advisor (for 13 years now) who charges .85% AUM. Minor rebalancing happens with each monthly w/d. I get financial advice for free when needed, and just this tax season my advisor told me to consider using COVID Relief Distribution to pay back funds into my IRA that I borrowed for a few months to put down on a new home while waiting for our rental property to sell. That saved me $30K in taxes and kept me from paying IRMMA fees. There have been other tax savings suggestions over the years as well.

I have averaged 9.3% ROR after fees for the last 8 years.

Advisors can be good for some people, but good ones are not easy to find.
It looks like you have found a good advisor that you are happy with, and it has been a good fit for you. There are legitimate advisors out there who add a lot of value, particularly in answering questions that are unique to an individualís circumstances.

As far as comparing your ROR to your friends, I donít know how meaningful of an exercise this is. It would be better to simply analyze what investments your advisor has you in compared to your friends index fund portfolio. Your advisor could have told you to put 100% of your money in Tesla stock 13 years ago, in which case you would be a very wealthy individual today. But you would have taken a much greater risk to get there, and it simply would have worked out in that scenario.

If you look at the beta of your portfolio, which measure the amount of risk you took to get those returns, and compare it to the beta of your friends portfolio, that will give you a greater insight into whatís going on with both of those RORs.

When the stock market is going up for long periods of time (as it has been over most of the past 13 years), riskier portfolios tend to do better. But during down periods they get clobbered.
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Old 03-14-2021, 08:20 AM   #56
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Agreed! Giving away 27.5% of your income to an advisor is absolutely ridiculous. I donít understand how people donít see that.
Well, if the advisor is beating the indexes handily it may be worth it. No advisor here,though.
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Old 03-14-2021, 09:29 AM   #57
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... There appear to be very few true "fee-only" FAs. I've seen many that claim to be fee-only, but then also charge AUM on top of (!) their fee. To me, that's not "fee only"..it's AUM PLUS a fee. ...
Your words, you get to say what they mean. But in the industry, "fee only" means that the advisor is not paid commissions on products they recommend. Most AUM-paid advisors will tell you that they are fee-only, according to standard industry definitions.

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... I get financial advice for free when needed, and just this tax season my advisor told me to consider using COVID Relief Distribution to pay back funds into my IRA that I borrowed for a few months to put down on a new home while waiting for our rental property to sell. That saved me $30K in taxes and kept me from paying IRMMA fees. There have been other tax savings suggestions over the years as well. ...
This is what a Financial Advisor does, in contrast to an Investment Advisor. If he is doing the full FA job he has also made sure that you have a will, an estate plan, health care powers, durable POAs, etc. If you have kids with college in the future, he has probably discussed strategy with you too. I'd suggest, though, that you not view this as "free." You are paying handsomely for it and should be as demanding as necessary to get advice on the non-investment aspects of your financial life. An FA is not a substitute for an estate attorney or a CPA, but rather a member of the team.
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Old 03-14-2021, 09:36 AM   #58
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Well, if the advisor is beating the indexes handily it may be worth it. No advisor here,though.
If the advisor is beating the indexes without adding more risk and volatility to the portfolio they may be worth it.
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Old 03-14-2021, 09:43 AM   #59
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If the advisor is beating the indexes without adding more risk and volatility to the portfolio they may be worth it.
If the advisor has the skill to pick winners, they would not be out hustling AUM customers. They would be as rich as they cared to be from trading for their own account, working from a yacht or a private island.
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Old 03-14-2021, 01:27 PM   #60
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Financial advisors discussions remind me of extended warranty discussions. There is always someone who came out handsomely by taking the extended warranty. Of course, the difference is the FA is in a can't lose situation with an AUM compensation.
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